Q&A: Jonathan Gitlin, the RioCan boss who thinks rent control is bad for renters

Last spring, Queen’s Park expanded rent controls in Ontario, eliminating a legal exception that used to allow landlords of newer buildings to raise rents virtually without restriction. Critics said the expanded controls would discourage developers from building new rental housing, and now a recent report from the Federation of Rental Housing Providers of Ontario says that about 1,000 planned purpose-built rental units have been converted to condos since the new rules came into effect.

Among the converted rentals are 133 units at the Kingly development, on King Street West, a joint project between RioCan and Allied Properties REIT. (Allied owns Toronto Life’s office building, and is the magazine’s landlord.) We spoke with Jonathan Gitlin, RioCan’s senior vice president of investments and residential, about what the government should be doing, why he thinks rent control may not be good for renters, and his best advice for people hunting for rental property.

For those of us who aren’t totally up on Ontario rental regulations, can you fill us in?
For a long time, there has been rent control in Ontario on buildings that were built before 1991. Allowing landlords of post-1991 buildings to hike rents was supposed to encourage people to build new rental housing. For a long time it didn’t really work, because there wasn’t enough demand to prompt developers to build purpose-built rentals. Recently, though, rental supply decreased to a point where developing new rental buildings was worthwhile.

Now, Ontario’s new legislation imposes rent control on all buildings—not just older ones. Every year, the government will set out a guideline percentage—probably between two percent and 2.5 per cent—and landlords cannot increase the rent beyond that. Prior to this legislation, you could raise rents on an annual basis at the whim of the market.

Isn’t rent control a good tool for keeping greedy developers in check?
The government is saying that you, as a landlord, can only grow your revenue by a certain amount. What isn’t taken into consideration is, what if inflation or expenses increase well beyond that amount? And what if interest rates go up dramatically? As developers, we want to be responsible stewards of our unit holders’ money. We always try to do the best we can to assess risk before we get into a new project. If all of a sudden your revenue side of the equation is capped, but your expense side has no cap on it, those numbers can make a development become not profitable very quickly. You’re taking on a lot more risk, which brings into question the viability of a project. I do believe there will be developers who may reconsider what’s coming down the pipeline in light of the new rules.

What is causing the major spike in demand for rentals?
One of the most significant reasons is the massive urbanization within Toronto. A large part of our society used to be happy to live in remote areas and drive to work, and there were also a lot of workplaces on the outskirts. Now you see a lot of companies setting up shop downtown, and people want to live close to where they work. I also think we’re seeing a new cohort of young professionals who would rather rent than be hamstrung economically by a down payment and a mortgage—they would rather travel and eat out at restaurants. And there’s also demand coming from immigrants and migrants, whom we’re thankful to have in the city every year. There are many people who can’t afford to buy in this market.

But lot of people can’t even afford to rent in this market! Premier Kathleen Wynne says the province’s rent control measures will lead to a more reasonably priced rental market. What do you say?
My response is that it’s very much a supply-driven issue. Economics 101: When demand outpaces supply, there’s an upward pressure on the cost.

So you think rent control is bad for renters?
I don’t want to make this political, but my fear is that the constraints that rent control puts on growth will have a lot of developers building condos instead of rental units, which may ultimately limit supply. Therefore, rental won’t necessarily be more affordable; it will just be harder to come by. People who are already renting units are protected, but not those who are looking for rental property. I also think the types of units that will be built under these new regulations will limit options for families.

How so?
I’m not saying RioCan is doing this, but in my mind a developer’s natural instinct will be to build something that will promote turnover, because with the rent control legislation you can only raise rents above the guideline when someone new moves in. Prior to rent control, developers may have sought out long-term tenants, which are often families. Now, the natural inclination might be to build units that suit single people, who are more transient, which doesn’t help the housing crisis. It helps people who don’t need a lot of help: young professionals who are upwardly mobile.

The Ontario government recently announced that it will be selling off some provincially owned land for development into 2,000 rental units. Is that a step in the right direction?
It certainly is one step that could and should be taken, but I think there’s going to be a supply issue that goes well beyond 2,000 units.

So it’s basically aiming a garden hose at a forest fire?
Your quote, not mine. But I’ll agree.

What would you do to make rental housing more affordable in Toronto?
We’ve been trying to push certain solutions to whoever will listen, and I think a lot of people in the rental development business have been doing the same. They’re simple: peg rent control increases to inflation, so that we’re not taking 100 per cent of that risk as landlords. Make it so that rent control doesn’t kick in until after a new rental building is stabilized—that is, leased and running smoothly. As far as affordable housing is concerned, there are other mechanisms that a government can impose upon developers. For example, you can allow greater density if a portion of that density is used for affordable housing.

What’s your best advice for someone in the unfortunate position of looking to rent in the current market?
I would say, find a unit that you have room to grow in and stay there for a very long time, so that rent control will help you in the face of a supply constrained market.